Investors Expect Federal Reserve Interest Rate Hike September 16

Bond investors expect the Federal Reserve System to raise interest rates during its meeting on September 16. This anticipation follows persistent inflation and strong job growth reported in August.

While rate hikes typically encourage a shift of capital from stocks to bonds, research from the Charles Schwab Corporation suggests a more volatile historical pattern for equities. Analyzing data since 1946, the study found that the S&P 500 typically sees average maximum drawdowns of -12% within six months and -14% within a year of an initial rate hike.

These declines intensify during periods of rapid tightening, averaging -16%, similar to the inflation fight observed between 2022 and 2023. Despite these short-term risks, historical data since 1928 indicates the market generally recovers, with the S&P 500 maintaining an average annual return of approximately 10%.